The energy and radicalism in welfare policy have nothing to do with the
Treasury and everything to do with Iain Duncan Smith’s moral vision

British history since the Second World War can be divided in two halves. Between 1945 and 1975 the social and economic settlement imposed by Clem Attlee’s great post-war Labour administration proved remarkably robust. It only faltered as a result of the acute economic crisis of the mid-1970s.

In a way that is probably hard for those who did not live through this period to understand, for the best part of that decade the very existence of the British state appeared to be under threat. Politicians from all mainstream parties seemed quite unable to cope with what appeared to be insoluble problems. Only the far Left was wholly confident of the answers, and the situation only started to clarify with Margaret Thatcher’s victory in the 1979 general election.

There is no doubt that Mrs Thatcher transformed Britain for the better. Yet she only challenged the economic aspect of the Attlee settlement, abandoning the failed Keynesian techniques of economic management and returning to the version of classical economics known as monetarism.

The rest of the Attlee inheritance remained unaltered. Mrs Thatcher deliberately left the welfare state and National Health Service alone, and the prime ministers who followed her – Major, Blair and Brown – were careful to follow suit.

Since 2008, however, Britain has entered a renewed (and probably even more dangerous) period of crisis. Just as Attlee’s inheritance was suddenly no longer applicable in the 1970s, so the post-Thatcherite settlement has been bankrupt ever since 2008. Once again, there are no obvious solutions.

David Cameron’s Coalition Government has responded in an intriguingly different way to Margaret Thatcher’s 1979 administration. Her chancellor, Sir Geoffrey Howe, made the deliberate and very courageous decision to set out on a new path and repudiate the conventional economic wisdom of the age.

David Cameron’s Chancellor, George Osborne, has been, by contrast, extremely conservative. It is true that in his emergency Budget of 2010 he made a set of rhetorical assertions that he was breaking with the immediate past. These, however, have turned out to be misleading. In practice, Mr Osborne has stuck to the Brownite rule book – the same massive and unsustainable deficit financing, the same crudely dishonest bookkeeping, the same loose monetary policy, and the same unrealistic forecasts about future growth.

As if to compensate for this failure of nerve on the economic front (where Mrs Thatcher was so brave), the Coalition has been bold and visionary in its policy for the welfare state (where Mrs Thatcher was notoriously cautious). The extraordinary energy and radicalism in this sphere has nothing to do with the Treasury and everything to do with Iain Duncan Smith, Secretary of State for Work and Pensions.

Mr Duncan Smith is this month in the process of making a series of momentous and inordinately ambitious reforms to our welfare system. They bear comparison to Margaret Thatcher’s great economic reforms because they involve a recasting of the relationship between the individual and the state. At the heart of Mr Duncan Smith’s programme is a profound moral vision that contrasts very sharply not only with the automatic state worship of the Balls/Miliband Labour Party, but also the stark individualism favoured by Mr Osborne and other free-market Tories.

I have followed Mr Duncan Smith’s remarkable journey closely ever since he ceased to be Conservative leader 10 years ago, kept in touch with him personally, spoken to those he works with, and even conscientiously read parts of the detailed and passionate reports he produced on the welfare crisis while in opposition. On the basis of this reasonably detailed knowledge, I can confidently assert that Mr Duncan Smith’s inspiration is less political than religious. He is animated by a profoundly Christian vision of free will, redemption, and what it means to be human in a fallen and imperfect world.

At bottom, therefore, it is safe to say that Mr Duncan Smith has no argument with the magnificent vision adumbrated by William Beveridge in his 1942 report setting out the principles underlying the welfare state. Mr Duncan Smith fully accepts that a civilised society must always extend a helping hand to those who, often through no fault of their own, fall on hard times or are genuinely in need (our acceptance of this vital principle is one reason why modern Britain is, on the whole, a civilised society and the US, on the whole, is not).

But Mr Duncan Smith also understood the secondary Beveridge insight that universal welfare can reward idleness and profligacy as well as protecting against failure. In the immediate aftermath of the Second World War, when the British people had come together as never before or since in the struggle against fascism, this was a relatively small problem.

But with the passage of more than half a century, this moral danger embedded at the heart of the noble idea of a welfare state has become a serious matter. Just as Beveridge feared, the benefits system has started to reward fecklessness and irresponsibility. It has distorted decision-making (Mick Philpott’s habit of fathering children so as to pocket state benefits is a grotesque example) and prevented people from taking responsibility for themselves.

The last government deliberately encouraged some of this. Gordon Brown extended the scope of the benefits system way beyond anything Beveridge envisaged. After 13 years of New Labour, people earning well over the national average wage were dependent on state benefits. Gordon Brown, in an act of great wickedness, had taken Beveridge’s welfare state and used it to create what was effectively an enormous client base for the Labour Party.

That is why this week’s argument over the welfare state is so divisive. We are talking about two contrasting philosophies. Conservatives want men and women to stand on their own two feet, and therefore support the strong institutions (family, church, school) that enable them to do so. Labour yearns to use the state to mould individual conduct to fit officially sponsored social norms. All of Mr Duncan Smith’s changes, and above all his idea of the Universal Credit, reflect a determination to enable everyone to live free and morally autonomous lives.

It is a wonderful and virtuous idea, and it is wholly understandable that Mr Duncan Smith’s Cabinet colleague Mr Osborne should now be trying to make the most of it. The Chancellor is nothing if not an opportunistic and shrewd analyst, and Tory party focus groups doubtless left him in no doubt that Mr Duncan Smith’s welfare reforms are popular.

Yet Mr Osborne needs to be careful. Until very recently, he was almost as ferocious an opponent of Mr Duncan Smith’s welfare reforms as the Labour Party. Twice he has attempted to block the Universal Credit (most recently late last year), while he tried to get Mr Duncan Smith sacked at the time of last autumn’s Cabinet reshuffle. As a result, the Chancellor’s intervention looks cynical. It would be a dreadful pity if Mr Osborne, having failed in his mission to remedy the national finances, were to contaminate the best policy the Conservatives have got.